For 2018, Will White of Land Advisors Organization Anticipates a Carbon Copy of 2017

TUCSON, ARIZONA — Will White has run the Tucson office of Land Advisors Organization (LAO) for the past 17 years with a focus on the representation of the area’s top Master-Planned Communities. He specializes in the sale of residential land and lots to production homebuilders, investors and developers. He has successfully represented public and private homebuilders and developers in numerous high profile, large acreage properties.

From Rancho Vistoso, Dove Mountain, Sanders Grove, Saguaro Ranch, Saguaro Bloom and Gladden Farms and Gladden Farms II in the Northwest submarket to the new La Estancia Master Planned Community, Mountain Vail, and Rincon Knolls in the Southeast submarket, LAO has been involved in a large percentage of the most significant land transactions in Tucson,. White’s unique perspective has helped his clients successfully navigate through a changing environment; through both good and bad cycles as White has certainly seen the best as well as the worse land markets during this time.

We recently sat down with White to get his thoughts on the direction of the Tucson land market.

Q: What are your takeaways from the first quarter’s land activity?

White: We are looking at basically a carbon copy of 2017. From our discussions with the builders, traffic is strong and is continuing the positive sales momentum from last year.  We are also tracking about 15% higher in permits than 2017, and as was the case last year, we are seeing the land acquisition machine slow to start but we have put together several new deals in the past few weeks, so it looks like this market will get very busy into Q2 and through the remainder of the year.

Interestingly, this would mirror last year’s activity where the bulk of lot closings were in the second half. While it is great that these closings are occurring, the reality is that the market really needs to begin to put an emphasis on closing more deals and starting construction in Q1 so that those communities are up and ready for the selling season in 2019. We see this situation as being “spring loaded” as the demand for land surges in Q2 then we will have an extremely competitive situation on our hands like we did last year. Right now, the shovel ready deals for 2019 are hard to come by, and while some builders were early to the party and locked positions up, others are on the outside looking in. In Tucson you don’t want to be the last one to show up – history has taught the homebuilders that.

Q: What new hurdles do the local homebuilders face this year?

White: There seems to always be some new “challenge of the day”. Right now, the primary concern is on development costs and labor. As the market has improved significantly and most of the finished lots were purchased by builders, Tucson has evolved into a market where builders are having to build their own lots or have the construction managed by a Developer. The local contractors have been stretched thin to take on all the new business and competing for the necessary skilled workers is driving up costs.  Material costs have also risen.

With land prices rising and the associated costs going up, it is no surprise that our home prices have also been forced up. The good news is that the market and consumer seem to be able to absorb this increase. The question, though, is for how long?

Another big issue is staff bandwidth of the homebuilders and being able to identify and process land deals quickly. This has been an issue over the past 24 months as the market has heated up and will need to change for builders to get enough land runway ahead of them. We see transactions taking an average of 45-60 days longer than normal conditions and this is mainly due to extension requests and time delays on the corporate approval process.

Q: Is the increase in interest rates going to affect the business?

White: There has been a lot of discussion on this topic. While rates have nudged upward, they remain low and raising them gradually will keep them low by historic standards. The real issue is the end price a consumer pays for a home, so whether it is rising home prices or rising interest rates, at some point monthly payments get prohibitive and this will definitely impact our market. We aren’t there yet, but it is something to watch for in the future.

Q: You have watched this market for a long time, is there anything that is standing out to you versus a decade ago?

White: Great question. The market is very fluid and more reactive than I remember ever seeing it. Things can change quickly over the course of a 60-day transaction, and I do think that the land deals are vetted more extensively than they were a decade ago. We see that the builders have the most success on deal approval where they have positive, real time data that supports their case. There is not a lot of speculation, or decisions being made exclusively on intuition or ‘gut feel’.

Another noteworthy change is that Tucson is dominated by public builders like we’ve never seen before.  The way that we are seeing lots delivered to builders is more efficient, in my opinion, and that is why more builders are choosing the area’s master-planned communities vs. entitling and developing by themselves.

In the last 10 years I don’t remember the land supply ever being so low, as well as the amount of zoned land sitting dormant. Infrastructure is a huge issue right now and really needs the market’s attention over the next 24 months. At present, 75% of Tucson’s future zoned land is without infrastructure, and somehow that needs to change.  My guess is that we’ll see homebuilders buying and developing larger deals and handling the main infrastructure going forward on their own, which will make financing vehicles more important than ever.

Q: The SFR permit level is much improved but it remains historically low for Tucson. Is this an economic factor or is it developable land supply?

White: Job creation is a big component for growth and especially in Tucson. Tucson gets painted with a negative brush most of the time regarding jobs, and we need to start to acknowledge that the significant (employment) announcements we’ve seen over the past few years are creating major economic momentum here in Tucson.

From the homebuilding side, I am hearing more and more that it is a land supply issue that has turned into a new housing stock issue. Our local community counts have been falling for 4 years straight. Bottom line is that until we grow community counts to a stronger level, we do not have the room to.

Q: So with all of that, where do you think we are and where are we headed.

White: The market in Tucson is up over 130% from the bottom in 2009. The last 24 months have shown significant improvement in traffic, sales, permits and pace. We see positive home price appreciation and sales that keep increasing.  While some homebuilders continue to employ a reactive approach to the market, others have been much more forward-thinking as it applies to land acquisition. This proactive approach has clearly shown to be more effective as those builders are getting solid positioning, more advantageous land prices, and are better positioned to see more replacement deals in the future.

2018 will continue to gain steam and we should see the remainder of the shovel ready deals in Tucson get quickly spoken for.  While the metrics are positive, the key to continuing this success will be pipeline-related, and we really need to catch up on getting large scale land projects underway. The good news is it is all doable, and if we do what is necessary, Tucson will have a very strong upside over the next several years.

To learn more, White can be reached at WWhite@landadvisors.com or 520-514-7454.